The myths and facts in supply chain finance solutions
by Kylene Casanova
PrimeRevenue’s white paper on the myths and facts in Supply Chain Finance defines SCF as: ‘A solution to optimize cash flows by allowing corporates to increase their payment terms while providing the option to their suppliers to get paid early.’ The Myths and Facts in Supply Chain Finance described in their white paper reveal several of the issues and pitfalls in supply chain finance solutions:
- Myth 1 - Funding is stable and committed and credit limits are secured and cannot be withdrawn: Not true as PrimeRevenue provides several FI options. So that if one withdraws there are still alternatives. Also accounting requires that the funds are uncommitted so that the payables are not classified as financial debt
- Myth 2 - Buyer’s cash flow generation depends on the number of suppliers participating in the SCF programme: Not true as the cash flow gain is generated when buyer extends payment terms
- Myth 3 - Rate arbitrage is a key decision factor for suppliers: PrimeRevenue believes that for suppliers the discount rate or rate arbitrage is considered as a minor factor. The main factor is the materiality of their sales towards this customer and also because many suppliers are likely to choose early payment terms to control cash flow without incurring debt
- Myth 4 - Banks can fund all currencies in all jurisdictions: No bank can do this, so PrimeRevenue uses multiple funders for their SCF programmes
- Myth 5 - Bank syndication solves the problems lack of liquidity in single bank proprietary platforms. PrimeRevenue believes that bank syndications with a lead bank simply act as a bank-proprietary platform with greater capacity, which results in no competition around best practices, innovation or pricing
- Myth 6 - Bank-independent technology and service providers add cost to SCF programmes. PrimeRevenue, who are one of these type of providers, argue that In fact using the expertise and solutions from technology and service providers has proven to help reduce the cost of the Supply Chain Finance programs overall and improve results.
PrimeRevenue have multiple Supply Chain Finance programmes around the world covering $1.4 trillion spend. There is definitely a role for bank agnostic technology and service providers as this list shows, although it is not as clear cut as PrimeRevenue would believe.
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